A busy August as take-up increases and supply sees the biggest monthly fall since March 2020
Another strong month for leasing activity as take-up in August reached 337,718 sq ft – this is 59% up on August 2020’s figure. This is also up by 124% on the average monthly take-up we were seeing occur in 2020. Furthermore, year-to-date take-up reached 1.98m sq ft across 177 transactions at the end of last month – this is already 10% higher than 2020’s annual take-up by volume, which reached 1.81m sq ft.
The largest transaction to complete in August was the Office Group’s 138,000 sq ft pre-let of the R8 development in King’s Cross, developed by Argent. This was followed by Octopus Energy’s 51,682 sq ft acquisition of the 5th and part 6th floors at UK House, 180 Oxford Street, on an 11-year term with a confidential rent.
A continuing theme we are seeing emerge post-pandemic is the preference of occupiers opting to acquire high-quality Grade A space. Last month, Grade A space accounted for 92% of take-up, and so far this year it has made up 84% of the overall leasing activity. This ‘flight to quality’ is a trend we expect to see continue as occupiers make an increased effort to draw employees back to the office with high-quality space.
Further to this, August saw 171,630 sq ft of space go under offer, 86% of which was of Grade A standard. The largest of this space was 90,248 sq ft on the 4th, 5th, and 6th floors at 70 Berners Street to the online software company Gamesys. This took the overall amount of space under offer to 1.25m sq ft, which is 9% above the long-term average.
As space under offer remained high, the levels of active and potential occupier requirements across Central London and the West End are also strong. Following on from July, August’s total tenant requirements stood at 7.3m sq ft, which is 4% above the long-term average.
From this total, 5.68m sq ft are classed as active, and 17% of these tenants have lease expires from 2023 and beyond, which suggests that many of them would consider pre-letting as a viable option.
Both the Professional sector and the Tech & Media sector account for the largest of these active requirements, at 27% each. Following this, the Insurance & Financial sector accounts for 20%. Last month we saw supply drop to reach 7.68m sq ft, which equates to a vacancy rate of 6.7%. This is down 30 bps from the previous month and is the largest monthly fall since the start of the pandemic in March 2020.
Tenant controlled supply continued to fall and reached 2.5m sq ft in August, a 6% drop from the previous month. This was partly due to Pearson’s choosing to withdraw the 49,037 sq ft of space at 190 High Holborn, which they put on the market back in September 2020.
The average Grade A rent so far this year stands at £78.42 per sq ft, in line with where it stood at the same period last year. The same can be said for the average prime rent across the West End, which stood at £115.25 per sq ft at the end of August, only a small 1% decrease from last year.
Currently, there is 1.17m sq ft of speculative space set to be delivered by the end of this year, which would take the total number of extensive refurbishments and developments to 3.32m sq ft for 2021. This would be a record year for developments for the West End; however, we anticipate some may be pushed back to 2022 due to inevitable delays.
Analysis close up
In Focus – Active and Potential Requirements
The total number of pre-lets so far this year amounts to 357,792 sq ft, across 11 separate transactions. This accounts for 18% of the overall amount of take-up we have seen complete this year. The majority of this pre-letting activity has occurred so far in Q3, accounting for 69% of the overall total, which suggests that occupiers are beginning to regain confidence in the fact that office use will not drastically decrease.
There is a further 483,965 sq ft of developments that are under-offer and in the pipeline, therefore we would expect to see more pre-lets completing over the next year.
With BREEAM accreditation becoming a larger focus for occupiers, unsurprisingly, 76% of the total number of pre-lets to complete this year have been awarded, or are targeting a BREEAM rating of ‘Very Good’ or above.